Episode 787: Google Is Big. Is That Bad?

Earlier this summer, a European official walked into a roomful of reporters and answered a question that some people have been asking for a long time now:Is Google abusing its power over the Internet?

Google--which is now technically owned by a company called Alphabet — is one of the biggest corporations on the planet. It controls the information billions of people see when they want to know: who was FDR's secretary of state, or where the nearest gas station is, or where to order a Sony Digital Camera.

The European Commission spent the last seven years looking specifically at that last kind of search — shopping — and asking: Did Google abuse its power over the Internet?

Europe's answer? Yes.

European officials say Google violated antitrust rules that govern how companies can compete with each other. The EC hit Google with the largest antitrust fine of a single company in European history. And it ordered Google to change the way they do business.

On today's show: The case for Google, the case against Google. And how the Google case helps us think about competition and the biggest corporations on the planet.

Earlier this summer, Margrethe Vestager walked into a roomful of cameras and microphones and reporters...

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MARGRETHE VESTAGER: Thank you very much.

GOLDSTEIN: ...Took a sip of water...

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VESTAGER: Today the commission has decided...

GOLDSTEIN: ...And answered a question that some people have been asking for a long time now. Is Google abusing its power over the Internet?

NOEL KING, HOST:

Google, which is now technically part of a company called Alphabet, is one of the biggest corporations on the planet. It controls the information that billions of people see when they want to know who was FDR's secretary of state?

GOLDSTEIN: Cordell Hull.

KING: Nice - or where is the nearest gas station?

GOLDSTEIN: Apparently it's at 51st Street and 11th Ave.

KING: Or where to order a Sony digital camera.

GOLDSTEIN: Bestbuy.com

KING: The European Commission spent the last seven years looking specifically at that last kind of search, at shopping, and asking did Google abuse its power over the Internet?

GOLDSTEIN: Vestager, by the way, is Europe's competition chief and 2.4 billion euros, $2.7 billion at the time of the announcement, is the biggest antitrust fine against a single company in the history of Europe, and as far as we can tell, in the history of the world.

(SOUNDBITE OF MARC FERRARI AND MATT HIRT'S "FOREVER AND EVER")

GOLDSTEIN: Hello, and welcome to PLANET MONEY. I'm Jacob Goldstein.

KING: And I'm Noel King. Today on the show, the case against Google - also the case for Google.

GOLDSTEIN: And how the cases for and against Google help us think about competition and market power and the biggest companies on the planet.

(SOUNDBITE OF MARC FERRARI AND MATT HIRT'S "FOREVER AND EVER")

KING: Here is a thing that is happening right now in the world. In all these different parts of the economy, in lots of different countries, a smaller number of companies is controlling a larger share of the market.

GOLDSTEIN: And this is a thing economists have been talking about for a while now. Lately, it has started to catch on with politicians. President Trump talked a little about it during the campaign.

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PRESIDENT DONALD TRUMP: Too much concentration of power in the hands of too few.

GOLDSTEIN: Chuck Schumer, the top Democrat in the Senate just last week.

KING: Yes (laughter). But figuring out how to apply them, figuring out what the government should actually do about this is really difficult.

GOLDSTEIN: And this Google case is really helpful in thinking about this stuff 'cause it's not just some abstract question about, oh, how big should a company be? What does it mean? It's a specific story with specific details.

KING: So we're going to tell that story.

GOLDSTEIN: This giant antitrust case against Google, it started with a complaint from one person or at least one small company.

GOLDSTEIN: It was a comparison shopping site. And you don't really hear about these anymore, which is actually kind of the point of this story. But back in 2006 when Shivaun Raff started Foundem in the U.K., there were a bunch of these sites in the U.K., in the U.S. I used one called Bizrate back in the day. There was another one called NexTag. And here is how they worked.

RAFF: So suppose you're looking for a specific digital camera and you go to Google and you say, show me the cheapest Sony DX 100.

GOLDSTEIN: To be clear, she's just making up an example here. But when Raff launched Foundem, right there near the top of searches like this or just for, you know, a specific digital camera or whatever, you would see links to Foundem and similar sites.

RAFF: And if you clicked on Foundem, then you would be taken to a page that showed you a comprehensive selection of the merchants who were offering that particular camera and also a little price history graph that tells you how the price of that camera has changed over the last six months. So you could tell if now is a good time to buy or not.

GOLDSTEIN: Raff figured this was just the beginning for Foundem. The technology that made the site work could be applied to almost any kind of shopping - you know, shopping for airplane tickets, shopping for a sandwich for lunch. And she imagined Foundem growing into, you know, a giant search engine on its own. Google itself had a comparison shopping site at the time called Froogal.

KING: Froogal but with two O's (laughter).

GOLDSTEIN: With two O's. You get it? Yeah, a clever name but it just wasn't very good. An internal Google document from 2006 said, quote, "Froogal simply doesn't work." That quote, by the way, comes from this EU case. So Foundem's doing pretty well. It's got a couple employees, some angel funding and almost all of their traffic is coming from Google. You know what's going to happen next?

KING: Can't be good.

RAFF: So on the 26 of June, 2006, our traffic falls off a cliff.

GOLDSTEIN: Off a cliff?

RAFF: Yeah. So we instantaneously, the first thing we do is look at what has happened in Google. And what has happened is that all our pages have disappeared from the search results. Where we might have been forth on the 25 of June, by the 26 of June, we were 47th. To go from 4 to 47 essentially switches off the traffic.

GOLDSTEIN: At first she thinks maybe the problem is something they did at Foundem - you know, some change in the way their pages were coded or something. But then she goes on these message boards for people working at small Internet companies. And she sees lots of other companies also fell off the same cliff on the same day.

And she realizes, oh, this is some big change that Google made. When you figured out what was going on, how did you feel at that moment?

RAFF: I am British.

GOLDSTEIN: (Laughter) And a coder and a techie.

RAFF: Yes.

GOLDSTEIN: That's, like, doubly hard.

RAFF: Yes, I am. I'm a British techie. I mean, I don't do emotions. I do "Star Trek" references is what I do.

(SOUNDBITE OF TV SHOW, "STAR TREK")

LEONARD NIMOY: (As Mr. Spock) Being a red-blooded human obviously has its disadvantages.

GOLDSTEIN: So Raff keeps a stiff upper lip and she figures, this is just some honest misunderstanding. You know, surely we'll clear it up in a few weeks. But weeks became months became years and some of the details of what happened along the way are in dispute. But a few things are clear.

KING: Yes, actually, three things are clear. Let's do a list. One, Foundem and other comparison shopping sites remain low in the rankings for years. Foundem eventually sort of semi shuts down.

GOLDSTEIN: Number two, Google eventually turns its shopping results into ads. So today when you see Google shopping results for, say, a Sony digital camera, you're not necessarily seeing links to, you know, the most reliable online camera stores or to the stores with the lowest prices. You are seeing paid ads.

KING: And number three, more companies start complaining about what Google is doing. Shivaun actually goes to work for a while as a consultant for some of these companies. And government officials in both the U.S. and in Europe start investigating Google.

GOLDSTEIN: The details of the laws and the investigation on each continent are different, but the same general principles apply. You know, in both places, regulators are asking this basic question, did Google violate antitrust law?

KING: Here's what antitrust law is. It's the law that governs competition. It got started a little more than a century ago when these big companies were starting to take over really big parts of the economy - like oil, like railroads.

GOLDSTEIN: And there's this really interesting tension, like, right in the middle of antitrust law. You know, the point of antitrust is to encourage competition. You know, we want companies competing to make better products, to provide better services. That is good for us, for consumers. But the way competition works is if a company comes along and is just better than everybody else, it drives them out of business and winds up with the whole market to itself, like take for example search engines. I'm old enough to remember (laughter) that there were a bunch of search engines out there for years before Google came along.

KING: I'm not going to lie to you. The only one I remember is Yahoo. And Bing is - was Bing a thing?

GOLDSTEIN: So there were all these search engines in, like, the mid-to-late '90s, you know, early Web. And then, Google came along. They weren't the first or the second or the third of the fourth. But when Google came along, they were so obviously better. And, like, I remember this. You tried Google, and you're like, it just works. It's like magic. How does it give me the thing that I want right away? And Google essentially put all these other search engines out of business or made them totally marginal because Google just worked so much better.

KING: So then the question is, is this a violation of antitrust law?

GOLDSTEIN: Yeah, I talked about exactly this with Herbert Hovenkamp. He's an antitrust expert at the University of Pennsylvania. If a company comes along and it's better than its rivals and it puts them out of business because it's better...

HERBERT HOVENKAMP: You're OK under both U.S. law and EU law. You're OK if you're simply a dominant firm.

GOLDSTEIN: I should say, by the way, Hovenkamp consulted for Google about 15 years ago, has not worked for them since then and is not speaking on their behalf.

KING: OK. So just having a huge market share is not, in and of itself, a violation of antitrust law. But there are people who think maybe it should be. Maybe we should worry about firms being this big and this powerful.

GOLDSTEIN: Yeah, there are people who argue that Google - and, for that matter, Facebook - should be treated like utilities, you know, like, say, the power company - highly regulated. But for now anyways, that is not how antitrust law works.

KING: For now, what antitrust law is focused on is called consumer welfare. Is a big, powerful company using its power to charge higher prices or to reduce output? In the Google case, this means, are consumers - in this case, shoppers, you and me - are we meaningfully worse off because of what Google did?

HOVENKAMP: This does not even involve something as simple as getting in your car and going from one shopping mall to another one. This is much easier than that. If they're not getting what they want from Google's search, they can get it from Yelp or Amazon. It's not like there's a small group of, you know, Ph.D. electrical engineers or something who know about this. Eleven-year-old kids know about this.

KING: And he says, if comparison shopping sites were so useful to consumers, then consumers would find them, just like they found Kayak and The Wirecutter and tons of other sites that are not Google sites.

GOLDSTEIN: Hovenkamp's expertise is U.S. law. He didn't want to weigh in on the specifics of the European case. But Google itself has made arguments a lot like these in Europe.

KING: Most people who shop online don't just use Google; this is what the company says. They use lots of other sites, like Amazon. And by the way, millions of different merchants compete to sell stuff on Amazon.

GOLDSTEIN: Competition, Google likes to say, is just a click away. The company also argues that consumers use Google Shopping, those ads at the top of search slides, because they're convenient and useful - because you click on them and they take you to the thing you want to buy.

KING: Google, incidentally, declined our request to do a recorded interview. But that, essentially, is the case for Google.

GOLDSTEIN: And for the case against Google, we go now to Gary Reback, whose job is literally making the case against Google. He's a Silicon Valley lawyer. He's done work for Foundem and other comparison shopping sites.

GARY REBACK: People can shop on other services. That's true. So Amazon may have lower prices. But Target may have lower prices. But Walmart may have lower prices. If you want to spend the time clicking around to 12 different sites, and you know what they are - and they'll be different for office products than for sandwiches - then you could do that. These comparison shopping sites were intended to do a specific thing - show you the lowest price available on the web. That service is gone.

GOLDSTEIN: And as a result, Reback argues, consumers are worse off.

KING: Margrethe Vestager and the European Commission weighed these arguments for and against Google. They studied the evidence, and they concluded...

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VESTAGER: What Google has done is illegal. And, most importantly, it has denied European consumers the benefits of competition, genuine choice and innovation.

GOLDSTEIN: Earlier this summer, when you heard the announcement, when you heard what the outcome was, what did you think?

RAFF: We were very, very pleased.

GOLDSTEIN: This, for Shivaun Raff, is high emotion.

KING: (Laughter) Shivaun Raff doesn't get any of the 2.4 billion euro fine, by the way. That just goes into the European Commission's budget.

GOLDSTEIN: But she does get something really important. The European Commission's ruling says Google has to give, quote, "equal treatment to rival comparison shopping services and its own service."

RAFF: Google has to start submitting all services, including its own, to exactly the same standards and algorithms.

KING: It is not clear exactly how this is going to work. Google Shopping is just fundamentally different than comparison shopping sites. Also, Google still has an opportunity to appeal this ruling. But this is the change that Raff has been waiting for.

GOLDSTEIN: So do you think you're going to relaunch Foundem?

RAFF: Absolutely. We will be able to rebuild our company and hopefully fulfill our potential.

GOLDSTEIN: To be clear, the ruling only applies to Europe. In the U.S., the Federal Trade Commission looked into similar allegations from U.S. comparison shopping sites and decided not to bring a case against Google.

(MARC FERRARI, MATT HIRT AND TIFFANY ANN PAYNE'S "NO ORDINARY LOVE")

GOLDSTEIN: You can email us at planetmoney@npr.org or find us on Facebook or Twitter.

KING: Today's show was produced by Elizabeth Kulas. Our editor is Bryant Urstadt. PLANET MONEY'S senior producer is Alex Goldmark.

GOLDSTEIN: If you're looking for something else to listen to, check out It's Been A Minute. It's a new podcast from NPR's Sam Sanders.

KING: It's a great show. It airs twice a week. On Tuesdays, they do deep dives with one person - terrific interviews. And then on Fridays, they wrap up the news of the week. It's hilarious.

GOLDSTEIN: It's called It's Been A Minute with Sam Sanders. And you can find it on NPR One or wherever you get your podcasts. I'm Jacob Goldstein.

KING: And I'm Noel King. Thanks for listening.

GOLDSTEIN: Noel, I did not speak with Margrethe Vestager of the European Commission for this show. We just played, you know, that tape of her from the press conference. But I did need to figure out how to say her name.

KING: (Laughter).

GOLDSTEIN: So I asked Shivaun Raff.

By the way, how do you say Vestager? Is it Vestager?

RAFF: Ah, it's Vestager. Commissioner Vestager.

GOLDSTEIN: I would've totally blown that one. OK, Vestager.

RAFF: So you could be the only man in the United States to pronounce it correctly.

GOLDSTEIN: Well, you know, I don't know...

RAFF: If you have the confidence to...

GOLDSTEIN: ...If it's correct if you're the only one saying it, right?

RAFF: Well, this is - yeah.

GOLDSTEIN: We don't call it - so this is a complicated question for a radio reporter...

RAFF: Yes.

GOLDSTEIN: ...But not one that you have to solve.

RAFF: Well, it's a philosophical thing. Are you a sheep or a wolf, Jacob?